Debt in the time of COVID-19: creditor choice and the failures of sovereign debt governance

Abstract

ABSTRACT While countries in the Global North have staved off the worst economic and health effects of the COVID-19 pandemic through massive stimulus spending, this option has been unavailable to many low- and middle-income countries, largely because high debt burdens have constrained fiscal spending. Nevertheless, almost no debt relief has materialized. The ad hoc approach to sovereign debt governance that emerged out of the debt crises of the 1980s helps explain why. It established an absolute commitment to upholding the right of private creditors to choose whether to participate in debt restructurings that has helped obstruct all significant sovereign debt governance reforms, preventing meaningful debt relief even in the context of the worst humanitarian crisis since the Great Depression.